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How Rising Interest Rates Will Impact Your Affordability

By Kuppan Gayathri

Rising Interest Rates and Increasing Prices Could Completely Change Your Affordability

By KWBlog

In a recent Forbes blog post, multimillionaire hedge fund manager John Paulson declared that today’s record-low interest rates made this the best time to buy homes in fifty years. “If you don’t own a home, buy one,” Paulson said. “If you own one home, buy another one, and if you own two homes, buy a third and lend your relatives the money to buy a home.” Why should we care what Paulson thinks? Well, he was among the few to accurately predict the sub-prime collapse and, while no one has a crystal ball, a closer look at the numbers supports his call to action. Historically low interest rates are the key…and they aren’t likely to hang around for long.

From the book Shift, buyers who “choose to wait until prices come down more” are gambling that interest rates will hold steady or drop. The truth is even a 10 percent drop in home prices is nullified by a 1 percent increase in interest rates. The figure below illustrates how this works for a $250,000 home purchase and the relative likelihood of each scenario.

Interest rates have dominated the news in recent months as we’ve shattered record low after record low. Potential home buyers need to understand the positive financial impact low interest rates have on the cost of home ownership and the thousands of dollars that can be saved over the life of a typical mortgage loan. For those who can afford to buy, trade up, or invest, our current market presents a lifetime opportunity.

If you are thinking about buying a home and don’t want raising interest rates to impact your affordability. Contact me today to setup a buyer’s consultation so I can better understand your needs and do what I can to get you into a new home.

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